A WTO dispute settlement panel has upheld a US complaint that export subsidy programs provided by the Indian government violated provisions of the trade body’s subsidies and countervailing measures (SCM) pact.The World Trade Organisation’s dispute settlement body has set up a panel to examine the US complaint against certain export-subsidy measures by India as both the sides failed to resolve the issue at consultation level, an official said.In March, the US dragged India to the global trade body’s dispute settlement mechanism over export subsidies, saying that these incentives were harming the American companies

About the issue

  • The three-member WTO dispute settlement panel comprising Jose Antonio S. Buencamino, Leora Blumberg and Serge Pannatier has struck down Indian export promotion schemes on the grounds that India is not entitled to provide such subsidies because it’s per capita gross national product (GNP) has crossed $1,000 per annum
  • Once the panel’s final report is made public, India will have a month to challenge the ruling before an appellate body, the highest court for global trade disputes.
  • If the appellate body upholds the panel’s ruling, India will be required to discontinue the existing export promotion schemes.

Background of the issue

  • In 2018, the US complained that India’s export-related programs violated Article 3.1(a) of WTO’s SCM agreement.
  • Under Article 3.1, developing countries with a gross per capita of $1,000 per annum are not entitled to provide export subsidies that are contingent upon export performance.
  • India has maintained that in 2015 it had announced it would discontinue export subsidies soon. Subsequently, the government made another announcement in 2017 that it would end the export subsidies.
  • Despite these pronouncements, the government has continued with export subsidies.
  • The ruling comes at an opportune time for Washington, which is mounting pressure on New Delhi to open the Indian market for medical products, particularly heart stents and knee implants, dairy items and other products, as part of an interim trade deal.
  • India had stated that it was disappointed that the US chose to move forward with a request for a panel, as it believed bilateral consultations held on April 11 were constructive.
  • During the consultations, India provided a detailed understanding of the schemes implemented under its Foreign Trade Policy by answering all the questions raised by the US.
  • India has also said that the schemes identified by the US do not violate India’s WTO obligations and are in conformity with all the elements of the agreement.
  • India’s exports to the US stood at USD 47.9 billion in 2017-18, while imports aggregated at USD 26.7 billion during the same fiscal.

Impacts of the judgment

The programmes that could be affected are export-oriented units scheme, electronics hardware technology parks scheme, biotechnology parks scheme, merchandise exports from India scheme, export promotion capital goods scheme, special economic zones and duty-free imports for exporters.

Prevailing uncertainties over the judgment

  • With WTO’s appellate body set to become dysfunctional from 11 December because of a US decision to block the selection process for filling six vacancies at the appellate body, it remains to be seen how India’s challenge against the panel ruling will be adjudicated.
  • Also, Washington has not implemented the appellate body’s ruling in favor of India against the US’s countervailing measures for carbon steel products until now.
  • A compliance panel is expected to issue its report whether the US fully implemented the findings of the appellate body in the case.
  • During the consultations, India provided a detailed understanding of the schemes implemented under its Foreign Trade Policy by answering all the questions raised by the US.

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